medicare: insolvency projections · 2016. 10. 5. · medicare: insolvency projections congressional...

Medicare: Insolvency Projections

Patricia A. Davis

Specialist in Health Care Financing

October 5, 2016

Congressional Research Service

7-5700

www.crs.gov

RS20946

The House Ways and Means Committee is making available this version of this Congressional Research Service

(CRS) report, with the cover date shown, for inclusion in its 2016 Green Book website. CRS works exclusively for

the United States Congress, providing policy and legal analysis to Committees and Members of both the House and

Senate, regardless of party affiliation.



Summary Medicare is the nation’s health insurance program for persons aged 65 and older and certain

disabled persons. Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI);

Part B (Supplementary Medical Insurance, or SMI); Part C (Medicare Advantage, or MA); and

Part D (the outpatient prescription drug benefit).

The Part A program is financed primarily through payroll taxes levied on current workers and

their employers; these taxes are credited to the HI Trust Fund. The Part B program is financed

through a combination of monthly premiums paid by current enrollees and general revenues.

Income from these sources is credited to the SMI Trust Fund. As an alternative, beneficiaries can

choose to receive all their Medicare services through private health plans under the MA program;

payment is made on beneficiaries’ behalf in appropriate parts from the HI and SMI Trust Funds.

The Part D drug benefit is funded through a separate account in the SMI Trust Fund and is

financed through general revenues, state contributions, and beneficiary premiums. The HI and

SMI Trust Funds are overseen by the Medicare Board of Trustees, which makes an annual report

to Congress concerning the financial status of the funds.

Almost from its inception, the HI Trust Fund has faced a projected shortfall. The insolvency date

has been postponed a number of times, primarily due to legislative changes that have had the

effect of restraining growth in program spending. The 2016 Medicare trustees’ report projects

that, under intermediate assumptions, the HI Trust Fund will become insolvent in 2028, two years

earlier than estimated in the prior year’s report.



Contents

Introduction ..................................................................................................................................... 1

Medicare Hospital Insurance Financing .......................................................................................... 1

What Is the HI Trust Fund? ............................................................................................................. 2

History of HI Solvency Projections ................................................................................................. 3

Current Insolvency Projections ....................................................................................................... 6

What Would Happen If the Fund Became Insolvent? ..................................................................... 7

Medicare Financing Issues .............................................................................................................. 8

Figures

Figure 1. Projected Number of Years Until Medicare HI Trust Fund Insolvency ........................... 4

Figure 2. HI Trust Fund Assets at Beginning of Year as a Percentage of Annual

Expenditures ................................................................................................................................. 7

Tables

Table 1. Year of Projected Insolvency of the Hospital Insurance (HI) Trust Fund in Past

and Current Trustees’ Reports ...................................................................................................... 4

Table A-1. Operation of the Hospital Insurance Trust Fund, Calendar Years 1970-2025 ............... 9

Table B-1. Tax Rates and Maximum Tax Bases ............................................................................. 11

Appendixes

Appendix A. Operation of the Hospital Insurance Trust Fund ........................................................ 9

Appendix B. Historical Payroll Tax Rates ...................................................................................... 11

Contacts

Author Contact Information .......................................................................................................... 12


Congressional Research Service 1

Introduction Medicare is a federal insurance program that pays for covered health care services of qualified

beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act as a federal

entitlement program to provide health insurance to individuals aged 65 and older, and it has been

expanded over the years to include permanently disabled individuals under the age of 65.

Medicare consists of four distinct parts, A through D. Part A covers hospital services, skilled

nursing facility (SNF) services, home health visits, and hospice services. Most persons aged 65

and older are automatically entitled to premium-free Part A because they or their spouse paid

Medicare payroll taxes for at least 40 quarters (10 years) on earnings covered by either the Social

Security or the Railroad Retirement systems. Part B covers a broad range of medical services,

including physician services, laboratory services, durable medical equipment, and outpatient

hospital services. Enrollment in Part B is voluntary; however, most beneficiaries with Part A also

enroll in Part B. Part C, Medicare Advantage (MA), provides private plan options, such as

managed care, for beneficiaries who are enrolled in both Part A and Part B. Part D provides

optional outpatient prescription drug coverage.1

Medicare expenditures are driven by a variety of factors, including the level of enrollment, the

complexity of medical services provided, health care inflation, and life expectancy. In 2015,

Medicare provided benefits to about 55.3 million persons at an estimated total cost of $647.6

billion.

The Medicare program has two separate trust funds—the Hospital Insurance (HI) Trust Fund and

the Supplementary Medical Insurance (SMI) Trust Fund. The Part A program, which is financed

mainly through payroll taxes levied on current workers, is accounted for through the HI Trust

Fund. The Part B and Part D programs, which are funded primarily through general revenue and

beneficiary premiums, are accounted for through the SMI Trust Fund.2 Both funds are maintained

by the Department of the Treasury and overseen by the Medicare Board of Trustees, which

reports annually to Congress concerning the funds’ financial status.3 Financial projections are

made using economic assumptions based on current law, including estimates of consumer price

index, workforce size, wage increases, and life expectancy.

Almost from its inception, the HI Trust Fund has faced a projected shortfall and eventual

insolvency. Because of the way it is financed, the SMI Trust Fund cannot become insolvent;

however, the Medicare trustees continue to express concerns about the rapid growth in SMI

costs.4

Medicare Hospital Insurance Financing Similar to the Social Security system, the HI portion of Medicare was designed to be self-

supporting and is financed through dedicated sources of income, rather than relying on general

1 For additional information on the Medicare program, see CRS Report R40425, Medicare Primer, coordinated by

Patricia A. Davis. 2 Payments are made for beneficiaries enrolled in Part C in appropriate portions from the Hospital Insurance (HI) and

Supplementary Medical Insurance (SMI) Trust Funds. 3 Medicare trustees’ reports may be found at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-

Trends-and-Reports/ReportsTrustFunds/index.html. 4 For further information on Medicare financing, see CRS Report R43122, Medicare Financial Status: In Brief, by

Patricia A. Davis.



tax revenues. The primary source of income credited to the HI Trust Fund is payroll taxes paid by

employees and employers; each pays a tax of 1.45% on earnings. The self-employed pay 2.9%.

Unlike Social Security, there is no upper limit on earnings subject to the tax.5 The Patient

Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) imposes an additional tax

of 0.9% on high-income workers with wages over $200,000 for single filers and $250,000 for

joint filers, effective for taxable years beginning in 2013.6

Additional income to the HI Trust Fund consists of premiums paid by voluntary enrollees who are

not entitled to premium-free Medicare Part A through their (or their spouse’s) work in covered

employment; a portion of the federal income taxes paid on Social Security benefits;7 and interest

on federal securities held by the HI Trust Fund.

What Is the HI Trust Fund? The HI Trust Fund is a financial account in the U.S. Treasury into which all income to the Part A

portion of the Medicare program is credited and from which all benefits and associated

administrative costs of the Part A program are paid. The trust fund is solely an accounting

mechanism—no actual money is transferred into or out of the fund.8

HI operates on a “pay-as-you-go” basis, meaning the annual revenues to the HI Trust Fund,

primarily the taxes paid by current workers and their employers, are used to pay Part A benefits

for today’s Medicare beneficiaries. When the government receives Medicare revenues (e.g.,

payroll taxes), income is credited by the Treasury to the appropriate trust fund in the form of

special issue interest-bearing government securities.9 (Interest on these securities is also credited

to the trust fund.) The tax income exchanged for these securities then goes into the General Fund

of the Treasury and is indistinguishable from other cash in the General Fund; this cash may be

used for any government spending purpose. When payments for Medicare Part A services are

made, the payments are paid out of the General Fund of the Treasury and a corresponding amount

of securities is deleted from (written off) the HI Trust Fund.

In years in which the HI Trust Fund spends less than it receives in income, the fund has a cash-

flow surplus. When this occurs, the HI Trust Fund securities exchanged for any income in excess

of spending show up as assets on the trust fund’s financial accounting balance sheets and are

available to the system to meet future obligations. The trust fund surpluses are not reserved for

future Medicare benefits but are simply bookkeeping entries that indicate how much Medicare

has lent to the Treasury (or, alternatively, what is owed to Medicare by the Treasury). From a

5 Prior to 1991, the upper limit on taxable earnings was the same as for Social Security. The Omnibus Budget

Reconciliation Act of 1990 (OBRA 90; P.L. 101-508) raised the limit in 1991 to $125,000. Under automatic indexing

provisions, the maximum was increased to $130,200 in 1992 and $135,000 in 1993. The Omnibus Budget

Reconciliation Act of 1993 (OBRA 93; P.L. 103-66) eliminated the upper limit entirely beginning in 1994. 6 See archived CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care

Act (ACA), by Janemarie Mulvey, for additional detail. 7 Since 1994, the HI Trust Fund has had an additional funding source; OBRA 93 increased the maximum amount of

Social Security benefits subject to income tax from 50% to 85% and provided that the additional revenues would be

credited to the HI Trust Fund. 8 There are about 200 federal trust funds. For additional information on how federal trust funds operate within the

context of the federal budget, see archived CRS Report R41328, Federal Trust Funds and the Budget, by Mindy Levit. 9 Unlike marketable securities, special issues can be redeemed at any time at face value. Investment in special issues

gives the trust funds the same flexibility as holding cash.



unified budget perspective, these assets represent future budget obligations and are treated as

liabilities.10

If, in a given year, the HI Trust Fund spends more than it receives in income, the fund has a cash-

flow deficit. In deficit years, Medicare can redeem any securities accumulated in previous years

(including interest). When the securities are redeemed, the government needs to raise the

resources necessary to pay for the securities and the monies are transferred from the Treasury’s

General Fund to the HI Trust Fund. When the assets credited to the trust fund reach zero, the fund

is deemed insolvent.

(See Appendix A for a discussion of recent and projected HI cash flows and for data on historical

and projected HI operations through 2025.)

History of HI Solvency Projections The HI Trust Fund has never become insolvent. The Medicare Board of Trustees projected

insolvency for the HI Trust Fund beginning with the 1970 report, at which time the trust fund was

expected to become insolvent in only two years. (See Table 1 and Figure 1.) The insolvency date

has been postponed a number of times since the beginning of Medicare through various methods.

For example, the payroll tax rate has been adjusted periodically by Congress as one of the

mechanisms to maintain the financial adequacy of the HI Trust Fund. (See Appendix B for

historical payroll tax rates.)

Other legislative changes have been made at various times to slow the growth in HI program

spending; generally, these measures have been part of larger budget reconciliation laws that

attempt to restrain overall federal spending. To illustrate, in the mid-1990s, efforts to curtail

Medicare spending intensified as Congress considered legislation to bring the entire federal

budget into balance and culminated in the passage of the Balanced Budget Act of 1997 (BBA 97;

P.L. 105-33). In early 1997, the Medicare trustees had projected that the HI Trust Fund would

become insolvent within four years, in 2001. Following the enactment of BBA 97, significant

improvements were made in the short-term projections over the next few years. The new

projections reflected a number of factors, including lower expected expenditures as a result of

changes made by BBA 97 (primarily resulting from modifications in Medicare Part C payments

and the establishment of prospective payment systems for certain Part A providers);11

continued

efforts to combat fraud and abuse; and strong economic growth, which was expected to generate

more revenues to the trust fund from payroll taxes.

There were concerns that the savings achieved through the enactment of BBA 97 were greater

than intended at the time of enactment and had unintended consequences for health care

providers. As a result of these concerns, Congress enacted two measures: the Balanced Budget

Refinement Act of 1999 (BBRA 99; P.L. 106-113) and the Medicare, Medicaid, and SCHIP

Benefits Improvement and Protection Act of 2000 (BIPA 2000; P.L. 106-554). These measures

were designed to reverse some of the BBA 97 spending reductions.

10 For additional information, see Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical

Insurance Trust Funds, The 2016 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and

Federal Supplementary Medical Insurance Trust Funds, Appendix F, “Medicare and Social Security Trust Funds and

the Federal Budget,” June 22, 2016 at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-

and-Reports/ReportsTrustFunds/Downloads/TR2016.pdf. 11 The Balanced Budget Act of 1997 (BBA 97; P.L. 105-33) established the Medicare + Choice program under Part C.

Medicare Part C was changed to Medicare Advantage by the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 (MMA; P.L. 108-173).



Table 1. Year of Projected Insolvency of the Hospital Insurance (HI) Trust Fund in

Past and Current Trustees’ Reports

Year of Trustees

Report

Year of Projected

Insolvency

Year of Trustees

Report

Year of Projected

Insolvency

Year of Trustees

Report

Year of Projected

Insolvency

1970 1972 1986 1996 2001 2029

1971 1973 1986

(amended)

1998 2002 2030

1972 1976 1987 2002 2003 2026

1973 None Indicated 1988 2005 2004 2019

1974 None Indicated 1989 None Indicated 2005 2020

1975 Late 1990s 1990 2003 2006 2018

1976 Early 1990s 1991 2005 2007 2019

1977 Late 1980s 1992 2002 2008 2019

1978 1990 1993 1999 2009 2017

1979 1992 1994 2001 2010 2029

1980 1994 1995 2002 2011 2024

1981 1991 1996 2001 2012 2024

1982 1987 1997 2001 2013 2026

1983 1990 1998 2008 2014 2030

1984 1991 1999 2015 2015 2030

1985 1998 2000 2025 2016 2028

Source: Intermediate projections of various Medicare trustees’ reports, 1970-2016.

Figure 1. Projected Number of Years Until Medicare HI Trust Fund Insolvency

Source: Intermediate projections of various Medicare trustees’ reports, 1970-2016.

Notes: No specific estimates were provided by the Medicare trustees for years 1973-1977 and 1989.



Despite enactment of BBRA 99 and BIPA 2000, which increased program spending, the 2001 and

2002 Medicare trustees’ reports continued to delay the projected insolvency date. These

improvements in solvency projections reflected both stronger-than-expected economic growth

and lower-than-expected program costs due to lower projected enrollment in Medicare Part C,

heightened antifraud and abuse initiatives, and lower-than-expected increases in health care costs.

The 2003 report projections, however, shifted direction. The projected insolvency date was 2026,

four years earlier than the 2030 date projected in the 2002 report. The revision was due to lower-

than-expected HI-taxable payroll and higher-than-expected hospital expenditures. In the next

year, the 2004 report projected that the HI Trust Fund would become insolvent in 2019, seven

years earlier than projected in 2003. A number of factors contributed to the revision of the

projected insolvency date, including slow wage growth (on which payroll taxes are based) and

faster growth in inpatient hospital benefits. In addition, the enactment of the Medicare

Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173) added

significantly to HI costs, primarily through higher payments to rural hospitals and to private plans

under the MA program.12

The 2005 Medicare trustees’ report projected that the HI Trust Fund would become insolvent one

year later than projected in 2004, in 2020. The revision reflected slightly higher income and

slightly lower costs in 2004 than previously estimated. The 2006 report moved the insolvency

date forward again, to 2018. The revision reflected expectations of slightly higher costs and

increased utilization of HI services. Both the 2007 and 2008 reports projected a 2019 insolvency

date, although the 2008 report indicated that insolvency would occur earlier in the year. The 2009

report moved the insolvency date forward to 2017, due primarily to the economic recession.

The 2010 Medicare trustees’ report, issued subsequent to the enactment of the ACA, estimated

that the combination of lower Part A costs and higher payroll-tax revenues expected to result

from the ACA would postpone depletion of the HI Trust Fund’s assets until 2029, 12 years later

than the date projected in the 2009 report.13

However, the 2011 report projected that the HI Trust

Fund would become insolvent in 2024, five years earlier than projected in the 2010 report. The

worsening financial outlook was primarily due to lower-than-expected payroll taxes stemming

from higher-than-expected unemployment and slow wage growth in 2010. The 2012 Medicare

trustees’ report projected the same 2024 insolvency date. Although income from payroll taxes

was expected to increase at a faster rate than expenditures through 2018 due to the projected

economic recovery, the application of an additional 0.9% HI payroll tax for high-income workers

beginning in 2013,14

and the 2% reduction in spending required by the Budget Control Act of

2011 (BCA; P.L. 112-25) from 2013 through 2021,15

income was still expected to be insufficient

to fully cover projected HI expenses during that period.

In their 2013 report, the Medicare trustees projected a somewhat better short-term outlook for the

HI Trust Fund. They moved the insolvency date two years later than their 2012 estimate, to 2026.

12 The Part D outpatient prescription drug program, which was created by the MMA, is funded under SMI; the

increased expenditures associated with this new benefit therefore had little impact on projections of Medicare (HI)

solvency. 13 The expected reductions were primarily due to productivity adjustments to Part A provider payment updates and

reduced payments to Medicare Advantage plans. 14 The high-income payroll tax was added by the ACA. See “Medicare Hospital Insurance Financing.” 15 Subsequent legislation extended the reductions for an additional four years, through FY2025. For additional

information on the Budget Control Act of 2011 (BCA; P.L. 112-25) and required Medicare spending reductions, see

archived CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M.

Mahan, and CRS Report R40425, Medicare Primer, coordinated by Patricia A. Davis.



The improved projections were primarily due to lower-than-expected expenditures in 2012, the

base year used to project future expenditures, and a larger-than-estimated impact of ACA

payment methodology changes on MA costs.16

In their 2014 report, the Medicare trustees

reported some improvement in Medicare’s financial outlook and therefore moved the insolvency

date four years later than their 2013 estimate, to 2030. This improvement was mainly due to

lower expected utilization of and/or spending for certain Part A services, including inpatient

hospital, skilled nursing, and home health care. The 2015 trustees report projected a similar short-

term financial outlook and maintained the 2030 insolvency date estimate.

Current Insolvency Projections In their 2016 report,

17 the Medicare trustees projected a slightly worsened short-term outlook for

the HI Trust Fund and therefore moved the insolvency date two years earlier than their 2015

estimate, to 2028 (from 2030 in the 2015 report). This change was due to lower-than-expected

payroll-tax income resulting from a slowing in real wage growth, as well as to lower expected

ACA-related reductions in provider payment rate updates through 2019.

The 2016 Medicare trustees’ report indicates that although expenditures exceeded income through

2015, the HI Trust Fund is projected to run a slight surplus from 2016 through 2020. (See Table

A-1.) Beyond 2020, expenditure growth is expected to again outpace growth in income. At that

time, trust fund assets would be used to make up the difference between income and

expenditures, until the assets are depleted in 2028. (See Figure 2.)

16 See CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA):

Summary and Timeline, coordinated by Patricia A. Davis. 17 Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2016

Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical

Insurance Trust Funds, June 22, 2016, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-

and-Reports/ReportsTrustFunds/Downloads/TR2016.pdf.



Figure 2. HI Trust Fund Assets at Beginning of Year as a Percentage of Annual

Expenditures

(estimates from 2009-2016 Medicare trustees’ reports)

Sources: Data from the Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical

Insurance Trust Funds, 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and the Federal

Supplementary Medical Insurance Trust Funds, Table II.E1, and Summaries of the 2010 through 2016 Annual

Reports of the Social Security and Medicare Boards of Trustees, Chart D (2010 and 2011) and Chart E (2013,

2015, and 2016).

Note: The 2012 insolvency date estimate was the same as the date projected in the 2011 report (2024), and the

2014 insolvency date estimate was the same as that in the 2015 report (2030).

Each year, beginning in 2010, the Centers for Medicare & Medicaid Services (CMS) actuaries

have issued an illustrative alternative scenario that have assumed that certain ACA changes that

reduce Part A provider reimbursements would be made through 2019 and then gradually phased

out starting in 2020.18

The 2016 alternative projection suggests higher total Medicare spending

levels than the trustees’ report’s baseline figures and a slightly earlier HI Trust Fund depletion

date of 2027.

What Would Happen If the Fund Became Insolvent? The practical function of the HI Trust Fund is to permit the continued payment of bills in the

event of a temporary financial strain (e.g., lower income or higher costs than expected) without

requiring legislative action. As long as the HI Trust Fund has a balance (i.e., securities are

credited to the fund), the Treasury Department is authorized to make payments for Medicare

Part A services. If the HI Trust Fund is not able to pay all current expenses out of current income

and accumulated trust fund assets, the HI Trust Fund is considered to be insolvent.19

18 Memo from John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures under an Illustrative Scenario

with Alternative Payment Updates to Medicare Providers,” June 22, 2016, at https://www.cms.gov/Research-Statistics-

Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2016TRAlternativeScenario.pdf. 19 From time to time, it is reported that Medicare is on the verge of “bankruptcy”; however, in the context of federal

trust funds, this term is not meaningful. It is true that a trust fund’s outgo can be greater than its income and that trust

funds can have a zero balance, but, unlike private businesses, the federal government is not in danger of “going out of

(continued...)



To date, the HI Trust Fund has never become insolvent. There are no provisions in the Social

Security Act that govern what would happen if insolvency were to occur. For example, the

program has no statutory authority to use general revenues to fund Part A services in the event of

such a shortfall.

In their 2016 report, the Medicare trustees project that the HI Trust Fund will be exhausted in

2028. At that time, HI would continue to receive tax income from which some benefits could be

paid; however, funds would be sufficient to pay for only 87% of Part A expenses. Unless action is

taken prior to that date to increase revenues or to decrease expenditures (or some combination of

the two), Congress may face a legislative decision regarding whether, and how, to provide for

another source of funding (e.g., general revenues) to make up for these deficits.

Medicare Financing Issues Much of the concern about the financial status of Medicare tends to focus on the HI Trust Fund

date of insolvency, when Medicare no longer has the authority to pay for Part A health care

services in full. This focus can, however, detract from the larger issues confronting the Medicare

program as a whole and from the program’s current and future impact on the federal budget and

on taxpayers. When viewed from the perspective of the entire federal budget, as the number of

beneficiaries and per capita health care costs continue to grow, total Medicare spending

obligations (HI and SMI spending combined) are expected to place increasing demands on

federal budgetary resources.

As noted earlier, because of the way it is financed, the SMI (Parts B and D) portion of Medicare

cannot become insolvent. However, a continuing shift from providing care in inpatient (Part A)

settings to outpatient (Parts B and D) settings has resulted in a greater portion of Medicare

spending being covered by beneficiary premiums and general revenues than by dedicated payroll

taxes.20

In the future, the Medicare trustees estimate that the portion of personal and corporate

income taxes needed to fund SMI will increase from about 13.5% in 2015 to 21% in 2030 and

25% in 2090.21

(...continued)

business” or having its assets seized by creditors. As noted, Congress has often taken actions to increase the trust fund’s

revenues or reduce its outgo when the Medicare HI Trust Fund has faced imminent insolvency. 20 The Congressional Budget Office estimates that the share of Medicare spending financed by dedicated payroll taxes

declined from 67% in 2000 to about 39% in 2016. Congressional Budget Office, The 2016 Long-Term Budget Outlook,

July 2016, p. 44, at https://www.cbo.gov/publication/51580. 21 This amount is separate from and in addition to the payroll taxes used to fund the Part A (HI) portion of the program.



Appendix A. Operation of the Hospital Insurance

Trust Fund Beginning in 2004, expenditures began exceeding tax income (from payroll taxes and from the

taxation of Social Security benefits). Expenditures began to exceed total income (tax income plus

all other sources of revenue) in 2008, and Hospital Insurance (HI) assets (the balance of the HI

Trust Fund at the beginning of the year) were used to meet the portion of expenditures that

exceeded income. Expenditures have exceeded income every year since then and continued to do

so through 2015. Although the HI Trust Fund is projected to run a small surplus in years 2016

through 2020, after that time expenditures are expected to again exceed income, with trust fund

assets making up the difference until the asset balance is depleted in 2028. At that time, the HI

Trust Fund will no longer have sufficient funds to allow for the full payment of Part A

expenditures (see Table A-1, below, for historical and projected Medicare financial data through

2025).

Table A-1. Operation of the Hospital Insurance Trust Fund,

Calendar Years 1970-2025

(in billions of dollars)

Year

Income Expenditures Trust Fund

Payroll

Taxes

Interest, Transfers,

Othera Total

Benefit

Payments

Admin.

Expenses Total

Net Change

from Prior

Year

Balance at

End of Year

Historical Data

1970 $4.9 $1.2 $6.0 $5.1 $0.2 $5.3 $0.7 $3.2

1975 11.5 1.4 13.0 11.3 0.3 11.6 1.4 10.5

1980 23.8 2.1 26.1 25.1 0.5 25.6 0.5 13.7

1985 47.6 3.9 51.4 47.6 0.8 48.4 4.8 20.5

1990 72.0 8.4 80.4 66.2 0.8 67.0 13.4 98.9

1995 98.4 16.7 115.0 116.4 1.2 117.6 -2.6 130.3

2000 144.4 22.9 167.2 128.5 2.6 131.1 36.1 177.5

2005 171.4 28.0 199.4 180.0 2.9 182.9 16.4 285.8

2006 181.3 30.2 211.5 189.0 2.9 191.9 19.6 305.4

2007 191.9 31.9 223.7 200.2 2.9 203.1 20.7 326.0

2008 198.7 32.0 230.8 232.3 3.3 235.6 -4.7 321.3

2009 190.9 34.5 225.4 239.3 3.2 242.5 -17.1 304.2

2010 182.0 33.6 215.6 244.5 3.5 247.9 -32.3 271.9

2011 195.6 33.4 228.9 252.9 3.8 256.7 -27.7 244.2

2012 205.7 37.3 243.0 262.9 3.9 266.8 -23.8 220.4

2013 220.8 30.3 251.1 261.9 4.3 266.2 −15.0 205.4

2014 227.4 33.9 261.2 264.9 4.5 269.3 −8.1 197.3

2015 241.1 34.30 275.4 273.4 5.5 278.9 −3.5 193.8



Year

Income Expenditures Trust Fund

Payroll

Taxes

Interest,

Transfers,

Othera Total

Benefit

Payments

Admin.

Expenses Total

Net

Change

from Prior

Year

Balance at

End of Year

Intermediate Estimates

2016 250.9 37.6 288.4 282.2 4.9 287.1 1.3 195.0

2017 265.3 40.1 305.4 296.1 5.2 301.3 4.0 199.1

2018 282.4 43.1 325.6 313.1 5.6 318.7 7.0 206.0

2019 298.7 46.7 345.5 332.7 6.0 338.6 6.9 212.9

2020 315.2 50.5 365.7 355.7 6.4 362.1 3.6 216.6

2021 332.1 54.1 386.2 380.5 6.8 387.3 −1.2 215.4

2022 349.1 57.7 406.7 407.5 7.3 414.8 −8.1 207.3

2023 365.6 61.3 427.0 435.7 7.8 443.5 −16.4 190.8

2024 383.1 65.6 448.6 463.8 8.2 472.1 −23.5 167.3

2025 400.4 69.8 470.1 490.9 8.9 499.8 −29.6 137.7

Source: Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust

Funds, 2016 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal

Supplementary Medical Insurance Trust Funds, Table III.B4, June 22, 2016, at https://www.cms.gov/Research-

Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2016.pdf.

Notes: Sums may not equal totals due to rounding.

a. Includes income from the taxation of Social Security benefits, Railroad Retirement account transfers, premiums paid by voluntary enrollees, and interest.



Appendix B. Historical Payroll Tax Rates

Table B-1. Tax Rates and Maximum Tax Bases

Calendar Year Maximum Tax Base

Tax Rate (percentage of taxable earnings)

Employees and

Employers, Each Self-Employed

1966 $6,600 0.35% 0.35%

1967 6,600 0.50 0.50

1968-1971 7,800 0.60 0.60

1972 9,000 0.60 0.60

1973 10,800 1.00 1.00

1974 13,200 0.90 0.90

1975 14,100 0.90 0.90

1976 15,300 0.90 0.90

1977 16,500 0.90 0.90

1978 17,700 1.00 1.00

1979 22,900 1.05 1.05

1980 25,900 1.05 1.05

1981 29,700 1.30 1.30

1982 32,400 1.30 1.30

1983 35,700 1.30 1.30

1984 37,800 1.30 2.60

1985 39,600 1.35 2.70

1986 42,000 1.45 2.90

1987 43,800 1.45 2.90

1988 45,000 1.45 2.90

1989 48,000 1.45 2.90

1990 51,300 1.45 2.90

1991 125,000 1.45 2.90

1992 130,200 1.45 2.90

1993 135,000 1.45 2.90

1994-2012 no limit 1.45 2.90

2013 and latera no limit 1.45 2.90

Source: 2016 Medicare trustees’ report, Table III.B2.

Note:

a. Beginning in 2013, workers pay an additional 0.9% of their earnings above $200,000 (those who file

individual tax returns) or $250,000 (those who file joint tax returns).



Author Contact Information

Patricia A. Davis

Specialist in Health Care Financing

[email protected], 7-7362

medicare: insolvency projections · 2016. 10. 5. · medicare: insolvency projections congressional...

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